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An often overlooked resource potential Tax credit working group turns its attention to the benefits of exploring for oil and gas in some of Alaska’s frontier basins ALAN BAILEY Petroleum News
Although most oil and gas interest in Alaska understandably tends to focus on the prolific regions of the North Slope and Cook Inlet, the state has multiple other geologic basins, some with definite oil or gas potential. On Nov. 20 the Senate Oil and Gas Tax Credit Working Group heard presentations about these frontier basins, as part of the group’s information gathering process.
Paul Decker, resource evaluation manager in Alaska’s Division of Oil and Gas, told the working group that there are a dozen or so basins with petroleum potential scattered both onshore and offshore around the state. Legislation passed in 2012 recognized six distinct frontier areas to which specific oil and gas credits apply, he said.
The state operates an exploration license program for state land in these basins, as an alternative to the oil and gas leasing programs that apply in the state’s established oil and gas provinces, Decker explained. To date, the state has issued seven exploration licenses, with three of these licenses subsequently being converted to conventional leases, he said. Seven entities are either actively engaged in or are expressing interest in the exploration of one or more of the basins, Decker said.
Three of these entities, Ahtna Inc., NANA Regional Corp. and Doyon Ltd., talked to the working group about what they are doing.
Ahtna Tom Maloney, CEO of Ahtna Netiye’, talked about Ahtna’s natural gas exploration program in the Copper River basin, where the Native regional corporation holds a state exploration license to the west of the town of Glennallen. Maloney said that Ahtna’s goals are to establish a source of affordable energy for the local community and hence to stem the flow of emigration from the Copper River region, and to create jobs for local residents.
Ahtna conducted some new seismic surveying in 2014-15 and plans to drill a gas exploration well in late February or March of 2016 to a depth of 4,500 to 5,000 feet, targeting the Nelchina sandstone, Maloney said. The 11 wells previously drilled in the region have shown the presence of natural gas, with the gas having a 94 percent methane content, he said. The most recent well, the Ahtna 1-19 well, was drilled in 2005.
HXR drilling services will be drilling the new well from the Tolsona pad, a small 3.8-acre pad on state land. The Ahtna well pad will be used as a project staging area. Peak drilling activity will involve 75 to 80 people. And the drilling project will bring jobs associated with the various services needed to support the project logistics, Mahoney said.
State tax credits have been instrumental in enabling seismic and trail work to be conducted in association with the exploration project - Ahtna sees the possible expiry of some tax credits in mid-2016 as a critical risk to its seismic and drilling program. Maloney said. The corporation recommends that the credits due to expire should be extended to 2022, in line with the expiry dates of other credits, he said.
NANA Lance Miller, vice president for natural resources for NANA, the Native regional corporation for northwest Alaska, provided an update on NANA’s efforts to promote exploration in the Kotzebue basin, a basin comparable in size to the Cook Inlet basin and located on the north side of the Seward Peninsula. In the 1970s Chevron conducted seismic surveys in the basin and drilled two exploration wells, Miller said. Chevron determined that the basin was more prospective for natural gas than for oil, although a NANA sponsored study in the 1990s suggested some oil potential.
In 2008 Trio Petroleum embarked on an exploration program in the basin but eventually abandoned its efforts after failing to secure funding for planned drilling. And in 2012 NANA retained consultancy firm Moyes & Co. to reprocess seismic data for the basin and to re-evaluate the technical and commercial issues associated with the basin’s petroleum potential.
Essentially, NANA is investigating ways to market exploration of the basin or find ways for NANA itself to advance the exploration, Miller said.
The seismic data show some amplitude anomalies suggestive of the presence of gas in the subsurface. And a prime purpose of current efforts is to de-risk the geology of the basin, given the relatively small amount of exploration that has been carried out in it, Miller said.
High cost of energy The high cost of energy in the region provides a prime motive for renewed exploration efforts. Successful exploration could also result in a source of gas to help sustain mineral development in the region. The Red Dog Mine, in particular, would become the anchor tenant for gas production, Miller said. Most onshore subsurface land in the basin belongs to NANA, while the state owns much of the offshore, he said.
NANA supports the state tax credit program as a means of encouragement for more drilling and seismic data acquisition. The corporation is continuing to evaluate the self-funding of seismic work while also working with interested parties on reviewing data and investigating funding options. The aim is to conduct some seismic surveying in 2016-17. NANA has confidentiality agreements with five or six organizations that are reviewing the corporation’s data, Miller said.
But, regardless of whether the corporation ends up doing the work itself or bringing in partners, state incentives for exploration really do help, he said.
Miller said that he sees the main challenges to development in the Kotzebue basin to be the fact that the basin lies in a relatively unknown part of the state, that exploration and development costs in the region would be high, and that the local market for gas needs clarification.
Doyon James Mery, senior vice president for lands and natural resources for Doyon, the Native regional corporation for the Alaska Interior, spoke to the working group about Doyon’s exploration efforts in the Nenana basin, some 40 or 50 miles southwest of the city of Fairbanks. Doyon has exploration interests both in the Nenana basin and in the Yukon Flats basin, to the north of Fairbanks, but in recent years has focused its efforts on the Nenana basin, where it sees both oil and gas potential.
Given that the Nenana basin and the larger but more remote Yukon Flats basin have similar geology, success in the Nenana basin could bode well for future Yukon Flats exploration, Mery said.
With some 400,000 acres of state leases in the Nenana basin, Doyon pays out about $1.2 million per year in lease rentals to the state, Mery commented, adding that the corporation also owns some subsurface land in the basin and has leased 9,500 acres of Mental Health Trust land. The corporation’s exploration efforts involving seismic surveying and drilling in the basin have demonstrated an active hydrocarbon system with the potential for multiple trillions of cubic feet of gas and billions of barrels of oil, he said. Results to date indicate a one-in-two chance of a commercial gas discovery from the next well and a one-in-four to one-in-six chance of finding oil, Mery said.
Having already drilled two wells to the west of the town of Nenana, Doyon plans the drilling of a third well to a depth of about 10,000 feet in the summer of 2016. And the corporation is carrying out a 2-D seismic survey in the northern part of the basin this winter. Just one of the targets identified from a previous 3-D seismic program has the potential for a 70 million barrel oil find and a 200 billion cubic feet gas find, Mery said.
Development opportunities Being an oil service company based in the Interior region, Doyon has reason to want oil and gas development in the region. Given the possibility of delivering oil from the Nenana basin to the trans-Alaska oil pipeline, only a modest oil find would be needed for economic viability, Mery said. While the basin lies adjacent to the route of a proposed pipeline for the export of North Slope gas, Nenana basin gas might also be delivered to Fairbanks. And propane from the basin could potentially be supplied to villages in the Alaska Interior from the town of Nenana, a regional hub for barging on the river system, Mery said.
State exploration credits are critical to Doyon’s exploration efforts, with the state in effect being a partner in the exploration effort, Mery said. Uncertainty over the future of the credit program chills new investor interest, he said.
Between 2005 and 2014 $43 million of Doyon’s gross spend of $68 million came from state tax credits, Mery said. And, for the seismic surveying and the drilling of a well in 2016, Doyon anticipates spending $30 million to $35 million, with $19 million to $22 million of that total coming from tax credits, he said.
But an oil find in just the single prospect targeted by the 2016 drilling could itself result in more than $500,000 in state royalties, Mery commented.
Asked about the possibility of a state loan program, as an alternative to tax credits, Mery said that he would need to see exactly what that looked like. While banks do not usually lend money for exploration activities, the state’s tax credit system is based on shared risks and rewards, he commented. In addition, the length of time that it might take to set up a loan program could put the whole exploration program at risk, he suggested.
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